The Missed Opportunity With Tire Sales with Scott Rea

Today we are talking to Scott Ria about missed opportunities with tire and alignment sales. Better informing the customers in creating trust and profit potential that the aftermarket competitors are taking for themselves. That and much more on this edition of Service Drive Revolution.

So Scott, you were asking if we're hockey fans?

Well, it's funny because in the background in my office I've got the TV on and there's a Calgary Flame Vancouver Canuck game going on, which means zero. Neither one of them made the playoffs. The playoffs have already started and these two teams are still finishing their regular season, which is unheard of. You never think about having regular season playing at the same time that the playoffs have already started.

And that's because of COVID Well, I.

Think it was just the schedules and because these two teams were so far out of it they could start the playoffs because they weren't going to make it anyway.

Are you in Canada?

I'm not, but I am a Canadian and that's my sport. So I grew up in Calgary, out west and that's my team. Fortunately they didn't make the playoffs this year.

So we're going to talk about selling tires, Scott.

Right up my alley. So think about going forward. What's the service department and who knows what the answer to this is. When an electric car takes over, right, you've got a 3,000 moving part combustion engine vehicle that has all sorts of things that can break. A lot of stuff can break. And when the mileage bands start to pile up on a car and you know this, I'm not, this is just conversation. You're going to have big ticket items at 100,000 plus miles. But you look at the data coming back on some of these Tesla 400, 500,000 mile runs, not much breaks now. They go through tires like breakfast cereal because of the weight, because of the torque in the engine, those sorts of things, the tires are going to wear out quickly. So the tire manufacturers are licking their chops because they're going to sell, I don't know, 100% more tires on electric vehicles than they do on a regular passenger car that weighs 3,500, 4,000 pounds instead of 6 or 7,000 pounds, I don't know. But then what is this service department really going to end up having to sell? They're going to have to sell a lot of suspension work because that's going to also take a hit with the extra weight. Brakes are going to go quickly until they maybe change the components that can last longer. But I don't know how you make A tire.

Handle that weight without changing completely the ride quality because you could put a solid rubber tire on the thing and it would last longer. But who wants that? So it'll be interesting to see what happens in the next. And you know, I'm bumping up against 60. I hope I'm out of this by then. Right, Because.

I think one of the, one of the components that you will have to be in is tires. And that's sort of a good segue into what we're really trying to talk about here. Because the data should make every dealer mad and terrified at the same time. They're slowly creeping up on the market penetration for tires sold in the dealership, but they're still terrible.

What is it, less than 10%?

Nine and a half percent? It's up a full percentage point in the last five years. So they've gained one percentage point in five years of the market penetration. And that's terrible, right, because. And I think part of it is the whole incentive plans that the OEMs have come up with. When you look at a dealer, 90% of their net profit comes from the incentives from the manufacturer. And those are geared around CSI and short term retention of the customer and other things, obviously volume of car sales, et cetera. But when you're only at 10% operating profit, something's really broken with that model. So a dealer needs to look at his fixed ops and say, am I really optimizing my department? Not one of them can say yes. I don't care who you are. Whether you're Longo with 150 technicians or you're the guy up the street with five technicians, if you held on to your customers, you should have growth in your RO accounts. You just don't. We've looked at this for years and the RO counts are flat. And when you talk to a service manager, most of them don't want growth in the ros. Why? Hard to find techs, more people to manage. I've got a revolving door of service advisors. I can't grow my RO count by 20% a year because I can't handle the work now in book six months out. So they have a flat RO count and simply replace the VINs that defect with new cars delivered over the curb. It's a terrible strategy, but for the most part, not many of them. Think strategically. How do I get like a Canadian dealer, right? They sell 100 cars a month. Some of them have 35 technicians. How's that possible, Chris? Guy that sells 100 cars here might have 10 technicians. And think he's doing a great job. Their metrics are all screwed up. And when it comes to tires, you say you could sell more tires. I don't want to sell tires. I don't make any money at it. That's the number one thing you hear, and it's true. Why? Because you look at a market like pick one, Dallas, Houston, Louisiana. Go to the yellow pages and put in tire replacement and that zip code. It's unbelievable. Houston has 1365.

Companies that advertise in the yellow pages for tire replacement. 1300, maybe. Those guys do 10 ros a day. 20 ros a day. That's 26,000 ros a day in that market. Think about that for a minute. No wonder they can't make any money. The tire companies like Goodyear and Costco and those guys, they give the tire away. They don't give a crap. There's no margin in tires. Let's all admit that. It's just a fact. They've used it as a loss leader since day one.

Scott.

The independent tire guys are making a lot of money. So there is a ton of money in tires.

They do and they don't. The guys that make a lot of money are a company like Discount Tire. How do they do it? Well, first of all, they're the big gorillas and they sell $5 billion worth of tires a year. Their strategy is interesting. So go there sometime and get tires replaced. I've done it. Took my Mercedes E350 in. They go to the car, they get your tire size, they come back in, and guess what? They recommend the highest grossing tire they have in stock. Is it the right tire? Is it the tire that came on it? From the manufacturer? They don't give a crap. They want to make money selling tires. Am I happy with the tires that are on my car now? I am not. They're not the same tire as the original OE tire. That was the Continental. Now, they made a lot of money. I did it because I wanted to see the experience, but it's not what I wanted. Now the next time I go around, I'm going to put the Mercedes OE tire back on the car because it performs better, it handles better, it rides better, it's quieter, less road noise, it gets better fuel economy because that tire was engineered into the suspension of that car. Did I know that going in? Yes. Did I buy the tires anyway? Yes. I wanted the story, right? That story is important because dealers don't push the OE tire.

They're the only one from the Build sheet that knows what tire came on that car. And there's a bunch of reasons why you want that tire on your car. The number one is safety. It's the safest tire based on load, speed rating, cornering, handling, sidewall dispersion. It's engineered to suspension. And the average OEM spends about $5 million doing that for every car. Tell the customer that, let them make the choice. We don't do that. People put whatever tire they want on, then they get dissatisfied with the car. Only have 40,000 miles and the car doesn't ride properly anymore. Getting rid of this and I'm going to buy a different brand, that's craziness. People need to change the way they communicate the information to the consumer. Price match guarantee should ensure that a dealer sells a lot more tires. Right. And our data would say after scanning 28 million plus vehicles that around 11% of the tires need immediate replacement.

So if you're doing 1000 ROS. You see 4000 tires, you should sell 440 tires a month because those are in need of immediate replacement. You could sell a few more because some probably need to be replaced because the guy won't make it to the next service visit. But that's just the hard data.

The point is though, that there is a lot of money in tires. So you know, we have, you know, we have coaching groups and we have guys that own tire shops in those coaching groups. And the thing that happens to dealerships is manufacturers make a deal with dealer tire. Dealer tire rebates 5% to the manufacturer. The dealers are at a disadvantage when the local tire shop is getting, you know, I don't know, up to 10% back on performance. So the more tires they sell, they get a back end. So they're getting a rebate that the dealers aren't seeing. The manufacturer is seeing that and they're, they, you know, they kind of have to go with dealer tire or whatever the manufacturer is doing. But the manufacturers are keeping a lot of that money and make, you know, the perception in the dealership world is that there's no money. But I have dealers that have gone out and bought a Goodyear franchise or a big O tire franchise and they're making a ton of money on tires. It's the model that needs to change in a sense where the manufacturers need to understand.

They need to understand and then the dealers need to understand that that's a retention tool and not a loss leader, but it's seen as a loss leader and that's not the case. It's just how the setup is currently. But it's going to have to change because like you're pointing out, tires are going to become more and more important for retention. But also, you know, as electric cars are rolling out, that's going to be a part of what the service departments need to survive.

And I don't disagree with you on the profit side, but tires tend to be a volume game if you want to make money at it. And here's the example. There's a little town south of Dallas called waxahachie. It's about 30,000 people. They got a discount tire store there. That's where I put my tires on when I lived in Texas. And I said to the manager, I said, so how many tires do you sell a month? He goes on an Average month, maybe 5,000. In a good month, maybe 6,500. Think about that. You talk to a dealer, he's happy when he sells 150 tires a month and he's got a dozen technicians. It's pathetic. So even if he's making 15 or 20 points on the tire, which is not really what they do in the dealership, for reasons that you just described, they don't have the volume of tires. Now, the profit from a tire really comes from the work around the wheel. You know, inspection processes for years have been flawed because you couldn't motivate a technician to pull the tire off the car unless you sold the rotation. And then they didn't find the work. And if you did and you sold tires and got the wheels off, now all of a sudden you see the scored rotors, you see the brake pads that need to be replaced, you see all the work that's there. And if you ran a report, which we've done in dealers, and you probably have done this as well, how much gross profit is on an RO with tires sold versus the gross profit on just a regular repair with no tires sold? We see it anywhere, depending on the brand, anywhere from 150 to 300 bucks more in gross profit because not from the tire. If you looked at revenue, it'd be way higher because tires are expensive, certainly in the high line stores. But it's the gross. You're selling more work as a result of selling the tires. So you got to look at it in a holistic approach instead of saying, boy, my parts manager won't stock tires and my dealer tire only delivers once a day, so I can't sort of meet promise times consistently. There's challenges. Don't kid yourself. This isn't easy for them to just flip the switch because for years they just sent the guy down the road, oh, you need tires, Go to Goodyear up the street. So how do we sort of claw that work back? Starts with identifying which tires need to be sold. Not every dealership does that, even through a multi point inspection. There was a recent lawsuit for what, $12 million. Because we told the customer the tire was great, it was an accident, the guy died. And when NHTSA went and did the investigation, the pictures were online, the cords were hanging out of the tire, but the multi Point inspection said 8, 30 seconds. So we have to fix that, right? There's a few pieces of this that make it a lot easier. Identify your opportunities, because then they'll know whether you're doing a good job or not. Assume you don't make any money on tires, and I don't want to get into that argument. You could make money if you had the right pricing strategy.

But if you identify you had 400 tires and you're the biggest, best tire guy in your district and you sell a hundred, you're using the wrong gauge. You know, if you're comparing yourself to the other guys who are selling 25 tires a month, and just because you're number one makes you feel good. You just threw away 300 tire opportunities to the aftermarket. Because that's the one thing about tires that people don't realize they're getting replaced no matter what you say, whether they age out because they've lost their shelf life. For guys sitting in the garage in Florida and they're six or seven years old and the sidewalls are all cracked and the thing's starting to lose air, or they just run out of tread and lose the ability to hold air. You have to replace the tires. So there's some things that we can do if we provided them more data. Hey, you had 400 tire opportunities, but you only closed 100. Do you care? Do you want to go to 200 or 300 or 400 tires a month? Here's what you might need to do. You might need to stock more tires. You might need to look at your pricing model. You might need to look at your technicians and see if they really do want to replace tires. Or do you need to go up the street and steal the guy from discount tire at 10 bucks an hour and that guy just runs around your shop putting tires on all day? Pretty simple solution there. Especially when you can't find people. You don't want an L1 certified tech putting tires on at 35 or 45 bucks an hour doesn't make sense. So there's a whole bunch of things we can do and imagine. Think about this, Chris. If we could show you a heat map of all the customers that are out there in your DMS that need tires replaced immediately and by immediate, I mean within the next week or so, what would you do with the information? Would you reach out to Kris and say, Kris, you're due for tires? We've been talking about this for a little bit. Now it's time. Come on back in for another analysis. We've got the right tire in stock. We've got price match guarantee. We'll finance your tires. If you need help, we'll give you 90 days, same as cash, we'll come and pick up your car. I mean, dealers are great at marketing stuff. They can come up with the right message, but they don't have the data. If we can give you a predictive model that says here is the five people today, seven people tomorrow, nine people the next day that all need tires replaced, could you give it to the BDC and drive more visits? Because if you don't hang on to the customer. Our data shows from those 28 million cars we've scanned that the average age of a car in a dealership service department is four and a half years old. But the aftermarket is servicing eleven and a half year old cars. So you wonder how they're making a bunch of money. Well, you've got a 40,000 mile vehicle versus 140,000 mile vehicle. You and I both know that the revenue possible maintenance and repair skyrockets once you hit about 100,000 miles. It's about five fold on average what a car under warranty spends, right? It's about 80 bucks a visit for the first few years of ownership because nothing goes wrong and even an oil change happens in BMW's case, 1.2 times a year.

There's no money in that stuff. But that's where all the incentive money is. On the early end, it should be at the back end. Hey, you hold on to a customer in 100,000 miles, we're gonna reward you.

So how do you sell more tires? Our opinion is you need the data on the tire, right? You need to know which tires need to be replaced, number one. Number two, you need to have the ability to do the work. Either have the stock available and if you have the right SKUs, you can probably get away with 85% of the requirement. With seven or eight SKUs.

Sell the tire, do the work. Around the wheel and then manage the next set of tires for the customer. Because either the date and the mileage and the tread depth. Now you can look at the next scan the tread depth, the date and the mileage and very accurately predict when that customer needs tires and reach out exactly when he's due. Instead of using 5,000 postcards a month with a 3% return, you probably want a high return rate. And you would get it if you were target marketing exactly when the tires are needed, especially if you've educated them along the way. So how do you sell more tires? It isn't that complicated. And you probably have lots of customers you work with that sell lots of tires. But in this industry, across the board, 9.5% penetration, they've got to compete with the Goodyears and the Pep Boys and even Amazon for that matter. People are ordering tires on Amazon and Discount Tire and Tire Kingdom and Les Schwab. The list is pretty long, right? Even Jiffy Lube, you wouldn't think, are they selling tires? Why are they doing that? Well, their business is drying up because oil changes are not every 3,000 miles like when we were growing up. They're once a year. So what do they do? They supplement their work with tires. And people in Jiffy Lubes are using our technology to help them sell more tires. How about Midas Muffler? They've completely changed their entire business model and built a 90,000 square foot tire warehouse in Buffalo. And they have 1400 locations now. It's tires plus or whatever they've called themselves because mufflers made out of stainless steel now and they don't rust and they don't go bad. Their business model dried up underneath them. Their business model is actually every six years they add something else to the name. So it started out like Midas Muffler, then it's Midas Muffler and brake. Then Midas Muffler brake suspension. Next is Midas muffler brake suspension cup holders.

And they've got to find things to sell. The dealer is no different. Right. They got to find some things to sell and they just haven't done that. And they ignore the tire. And because of that, the big gross item in their shop is alignments. And they do a terrible job of alignments. You know, it's a 5% penetration on the repairers that have an alignment. We scan 28 million vehicles, 35% of those cars need an alignment based on misalignment. Why are they not doing that? Well, because they don't know what cars so some people put it on the rack. They test every car, and they pay the technician 2, 10. And then it just erodes their gross profit. And they can't capture all their opportunities. Identify the alignment and tell the customer to buy it. And give them the reasons, right? The three reasons. Safety, save the life of the tire, improve fuel economy. Those are pretty simple arguments.

But because you don't do alignments unless you sell tires, the alignment rack sits idle.

But if you do a thousand repair orders, you should be doing 350 alignments a month. There's no reason you shouldn't get a high percentage that work. So there's where the money is, right? The gross is on the alignment. Hunter's talked about that for decades and have put lots and lots of equipment out there to measure the alignment specification. We do it a bit of a different way, by measuring the tire as opposed to measuring the tow and camber percentages and giving the spec to the customer. Unless you're educated, like maybe you are, Chris, you tell a customer It's 5 degrees negative tow. They don't know what that means. But if you tell them that their tires, three on the inside and five on the outside, something's wrong with the suspension, they get it. And that's, you know, that's obviously another reason to measure the tire from shoulder to shoulder, because we hear it, and you probably hear it, too. Customer comes in, he's got five. The next time he comes in, he's got seven on his tire. Seven. 30 seconds. How'd my tire grow? Rubber? Well, the first guy measured it on the inside, and he measured five. The next guy that measured it measured on the outside, and it was seven. Both were absolutely correct in their measurements, but they didn't tell them the perspective between left and right. You know, the inside to the outside. I think that this business really needs to open its eyes to the tire side, because if they don't, the aftermarket will just continue to steal their customers. And as the op codes vanish, for all the things that we just talked about, not just the electric side, but the warranty and things like that, they're going away. Service business will be harder and harder to generate more gross.

It just will. Maybe warranty will go up again. It seems to be on the climb a little bit. And I don't know if you saw Jim Roach's pitch on his new company, the warranty company. He's got, you know, he's. He's suggesting that the warranty is rising by 10% a year. That's pretty interesting. And maybe it's just because of these massive recalls. You have a Takata airbag, and it just skews the numbers through the roof like it did in 2016. But.

I don't think the OEMs are intentionally making cars that are worse or that break more often. They don't want that. They want a low cost of ownership, not a higher.

Yeah, you know, the electric cars will break it first. That's good. Well, thanks, Scott. The moral of the story here is tires are a huge opportunity and they lead to alignments and brakes and other things. Right.

That's a fact. And the people that have focused on it have made hundreds of thousands of dollars a year more in profit in their. In their fixed ops.

And retention.

And retention. I scratch my head every day. Why are people not loving selling tires and alignments? Because it leads to a lot of gross. Especially if your compensation plan has the variable component paid on net profit. The contribution of incremental sales, and you've probably done these calculations, is about 60% to net profit. Right. And these are things I'm sure you talk about every day when you're wandering the streets and in dealerships. He doesn't really wander the streets as much anymore. I could, though. He's trying to break that habit.

No, I could. I could start wandering the streets. Why not? A lot of people like to randomly talk about tires on the street. Cool. Thanks. It was great talking to you, Scott. We appreciate it.

Sounds good. Thanks, Chris. Bye. Bye.

Thanks so much for watching this episode of Service Job Revolution. We're uploading new stuff every day, so make sure you subscribe and click the bell icon so you don't miss out. If you have a question you'd like us to answer on the show, call 8333 Ask SDR and we'll answer your question on the show. That's 8333 Ask SDR. For special deals on our books and training, head over to to offers.chris collinsinc.com now that's offers.chriscollinsinc.com I'm Chris Collins, and I'll see you in the next video.